The large shift has been to the so-called "co-production" type of arrange- 14. Appendix B hereto contains detailed breakdowns of the sources of network programs and network corporations' interests in them for programs broadcast 6-11 p.m. during a week in November each year 1957-1964. The table below summarizes the sourcesof all evening (6-11 p.m.) programs carried on each of the three networks during a representative week in 1957 and 1964. The figures are shown as percentages of total network evening program hours. 26/ For the week of April 17-23, 1955, between 6 and 11 p.m., on NBC 28 programs out of 43 or 65.1% were programs produced by persons other than NBC in which NBC did not have any financial or proprietary interest. On CBS in the same period 18 out of 47 or 38.3% were programs produced by persons other than CBS in which CBS did not have any financial or proprietary interest. Docket No. 12782, Exhibit No. 83 (NDC), Exhibit No. 58 (CBS). Similar data are shown below for entertainment programs only: 15. Whereas in 1957 independents provided approximately one-third of the evening network schedules, their share in 1964 had declined to less than 10 percent. Conversely, programs produced by or in conjunction with network corporations now occupy more than 90 percent of the weekly evening hours on the three network corporations combined. The ratios of network-controlled program fare as among the individual networks range from 88.0% to 97.8% for entertainment programming and 89.4% to 98.1% for entertainment and other programming. 16. The inability of independent entrepreneurs successfully to competc in the so-called network television program market except upon terms dictated by network corporations seems obvious from the above figures. The ability of network corporations thus to dictate the terms of entry to the network television program market is a function of their control of broadcast time on large combinations of local television facilities permitted by the commercial convenience and willing acquiescence of television licensees. 17. Testimony before the Commission indicates that the increase in financial and proprietary control of the production, procurement and scheduling process by network corporations has been accompanied by an increase in bulk circulation programs attractive to mass advertisers. The testimony before us is in conflict as to whether the increased control has been used in order to maintain bulk circulation, 27/ or whether it has been due to the increased productions costs of "quality" network programs, 28/ or to the evolution of more sophisticated marketing techniques and advertising practices. 29/ 27 See TR. 8140-1843 (Aubrey, CBS); TR. 9043-9056 (James A. Stabile, Vice President and Associate General Attorney, NBC) and TR. 8884-8888 (Walter D. Scott, Executive Vice President in Charge of NBC Television Network) and TR. 9358-9359 and TR. 9370-9375 (Treyz, ABC). The commercial fruits of the circulation-rating-time rate formula is indicated by the following: A study by Interpublic Group of Companies, Inc. reported in Television Magazine, May 1964, p. 83 noted: "Network TV [from 1958 to 1963] showed a hefty 25% gain in basic rates, but its C-P-M [cost-per-thousand] rise was a modest 3%, the smallest among all national media measured." A circulation increase of 21% explains the low C-P-M change. The commercial benefit to "acquiescing" affiliates is perhaps indicated by an overall 35% increase in spot television "basic rates" during the same period. Analysis by the staff shows a 19% increase in network rates (network owned-and-operated stations and affiliates) in 57 three-station markets between 1958 and 1962: The network program process is described in detail in the record of the Program Inquiry. See testimony of Walter Scott, Exec. Vice Pres., in Charge of NBC Television Network, TR. 8857-8903; James Aubrey of CBS, TR. 8119-8222 and Oliver Treyz of ABC, TR. 9354-9385. See also testimony of various producers in Vols. 36-43. The "slide rule" approach to network scheduling is well illustrated by the recent, highly publicized changes in both programs and program sequence by CBS following its "loss" of nighttime circulation "leadership" as indicated by the Neilsen "ratings." See New York Times, Thursday, December 10, 1964, Monday, December 14, 1964, and Wednesday, December 16, 1964; also Broadcasting, December 14, 1964, p. 25. 28/ H. Rpt. No. 281, p. 65; TR. 8884-8885 (Scott, NBC); TR. 8140-8144 (Aubrey, CBS); TR. 9371-9372 (Treya, ABC). See TR. 8144 (Aubrey, CBS): "The huge financial risk connected with hour-length programming has made the network the natural supplier... [High costs and multiple sponsorship have] resulted in and will continue to result in a substantial portion of programs being produced by or licensed to the network." Aubrey pointed out that in 1959 29% of CBS' evening schedule was sponsored by single sponsors; in 1961 that figure had fallen to 14.5%. (TR. 8143) 29/ H. Rpt. No. 281, p. 67 - TR. 8838 (Scott, NBC): '...a number of advertisers have found that they can obtain increased 18. The results of the evolution of program practices above described as they affect procurement of network programs have been (a) to concentrate economic, proprietary and creative control of program production and procurement in network corporations; (b) to concentrate residual rights to television programs in network corporations; and (c) progressively to limit the market available to independent producers of network programs for all practical purposes to the three network corporations and, hence, to restrict the profitability of the operations of independent program producers. The total effect of this condition has been a marked tendency to centralize control of what the American public may see and hear through television in network corporations and thus to hamper the competitive development of "diverse and antagonistic" sources for television program service. 30/ This is almost the exact reverse of that "condition of competition" within the framework of service in the public interest intended as the principal criterion of choice of program fare under the American system of broadcasting. 31/ 30/ The constriction of the network program market may perhaps best be measured in terms of the available product in "pilot" form. There are no "official" figures as to the number of "pilots" offered each year. However, the following information gives some idea of the trend. An advertising agency executive testified that for the 1959-60 television season, between 225 and 250 "completed" pilot films were offered in the network television program market. About 90% were "new investments," which means that "someone had an idea, had gone to the script form, had gotten financing." The other 10% were "pictures that had been on the air in the past season as episodes in another series," and had "succeeded"---the socalled "spin-offs" from current series. (TR. 431-433) Other agency executives agreed that these figures were approximately correct. (TR. 572, 651; TR. 913) On December 23. 1964, The New York Times reported that "new television shows for next season will be selected from among 76 pilot films...." NBC has "24 shows in production," ABC has 22 and CBS has 18. "There are 12 others being financed by sponsors, which have not yet chosen a network." So that, according to the Times all but 12 of 76 shows offered in the network program market for the 196566 season are either network-produced or financed. Another very recent estimate by a leading advertising agency indicates a total of 100 pilots in the market for the 1965-66 season. Of these 30-35 are said to be so-called "free-balls," i.e., pilots produced and financed solely by advertisers or independent producers. The balance are network-produced or financed. A previous estimate from the same source indicated that for the 1964-65 season about 75 or 80 pilots were made, the vast majority of which were network-financed. 31/ The testimony of Frank Stanton, President of CBS, on improved use of the spectrum is perhaps equally relevant to the network television programming process. He said (TR. 8009): "If we really believe that over the long haul improvement and progress in a democracy are attained through competition for the attention and approval of a people free to make up its own mind, then we must put our major trust in improving the conditions of competition." III. The Domestic Syndication and Foreign Television 19. In addition to offering network schedules to affiliates, the three television network corporations engage in domestic syndication (both to their own affiliates and to other stations) and in foreign sales of television programs as regular parts of their business. During approximately the same span of time when network corporations devised and perfected program production and procurement practices through which they progressively acquired economic and creative control of all but a small portion of their evening schedules, they expanded their activities in the sale of filmed programs and series in domestic syndication and foreign markets. 32/ Formerly, the domestic 32/ There are no published figures which authoritatively describe the dollar dimensions of domestic syndication and foreign sales of television programs or the extent of the participation in these markets by network corporations. However, limited figures (which concededly do not disclose the whole picture) were obtained from the three television network corporations on their revenues and profits derived from domestic syndication and foreign sales of programs which originally appeared in their network evening schedules from October 1957 through December 1961. These figures indicate that during the four year period, 1958 through 1961, there was only a small increase (less than 5%) in net revenues from domestic distribution fees. However, there was a much greater percentage of increase (approximately 65-fold) in net income from foreign distribution fees and approximately a 250% increase in gross foreign distribution fees. Share of profits received or retained from domestic and foreign non-network distribution rose by 81.5%. Total gross revenues from domestic syndication and foreign sales increased 54.5% between 1958 and 1961, and net revenues increased 126.1%. These figures are based on only those regularly scheduled program series produced by others and licensed to the network corporations which were broadcast between 6 and 11 p.m. during the period from October 1957 to the end of December 1961 and in which the network corporations obtained distribution or profit-sharing rights in domestic or foreign syndication or any combination of such rights. Based on these filings, total revenues from domestic and foreign syndication activities accounted for less than one per cent of the combined revenues from the sale of time, talent and program material to advertisers. Some indication of the inadequacy of these figures to show more than a trend can, perhaps, be gleaned from a comparison of the CBS filing with its Annual Report to Stockholders, The filing listed only 21 series, while the Annual Report for 1963 states that "CBS Films Inc. distributes more than 80 program series in 70 countries, at a rate of more than 2900 half hours weekly. (p. 19) Apparently this is in addition to domestic distribution. Some further indication of increases in network foreign distribution is indicated by the following statement from Television Digest, April 1, 1963, p. 6: "NBC's foreign TV business was 61% greater than 1961 last year, and 1963's sales are at a higher rate, NBC International announced last week after N.Y. & Hollywood meetings of its field staff representatives. NBI now supplies TV programming to 110 stations in 60 countries, and has financial or management commitments with stations or networks in 15 areas of the globe...." |